The California Public Utilities Commission (CPUC) and the California
Energy Commission today issued for comment a proposal of recommendations
to the California Air Resources Board (ARB) on greenhouse gas (GHG)
emisions reductions for the electricity and natural gas sectors in
California.

Assembly Bill 32 requires the ARB to adopt a GHG emissions cap on
all major sources to reduce statewide emissions of greenhouse gases to
1990 levels by 2020. The legislation also requires that the ARB consult
with the CPUC and Energy Commission for its plan for the energy
industry.

The CPUC and Energy Commission recommend that the ARB adopt a mix of
direct mandatory/regulatory requirements and a cap-and-trade system for
the energy sectors, including:

All retail electricity providers should be required to provide all cost-effective energy efficiency programs and renewable energy delivery beyond the level of 20 percent of their retail sales to their customers.

All entities that provide transportation, distribution, and/or retail sales of natural gas to end-users in California should be required to provide all cost-effective energy efficiency programs to their customers.

A multi-sector cap-and-trade program should be developed for California that includes the electricity sector (the natural gas sector should not be included in a cap-and-trade system at this time but should be considered for inclusion in the future).

The ARB should designate deliverers of electricity to the California grid as the entities responsible for compliance with the AB 32 requirements. This is a variation on the "first-seller" proposal first advanced by the Market Advisory Committee to the ARB.

At least some portion of the emission allowances available to the electricity sector for the cap-and-trade program should be auctioned. An integral part of this auction recommendation is that at least a portion of the proceeds from the auctioning of allowances for the electricity sector should be used in ways that benefit electricity consumers in California, such as to augment investments in energy efficiency and renewable energy or to provide customer bill relief.

The proposal is open for comment for 30 days. If adopted by both
Commissions the recommendations will be submitted to the ARB for its
consideration as part of the AB 32 Scoping Plan. The CPUC is expected
to consider adoption of the proposal at its March 13, 2008, meeting, and
the Energy Commission is expected to do the same at its March 12, 2008,
Business Meeting.